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How to adjust or set off losses occurred from share market transaction? And what is the applicability of tax audit in such case?


Adjustment of loss

Loss from F&O business is considered as non speculative loss. As per the Section 71 of the Income Tax Act, loss in respect of such business can be set off against any other heads of income including income from speculative business but excluding income under the head “salaries” of that year.

Loss from Intraday transaction is considered as speculative loss. As per the Section 73 of the Income Tax Act, loss in respect of speculative business cannot be set off against any other heads of income i.e. it can be set off only against other speculative incomes if any in that year.

Loss from short term capital gain—Loss from short term capital gain cannot be set-off against any income except short term capital gain or long term capital gain.

Tax audit is required in two situations:

a.) If ‘turnover’ exceeds Rs. 2 crores in a financial year in case of F&O and equity, or

b.) If turnover doesn’t exceed Rs. 2 crore, but assessee incurred loss in share trading business or profit is less than 8% of the turnover and your ‘total income’ is greater than the basic exemption limit (i.e in situations where you are also having salary income along with your trading loss/ income).

If assessee falls in any of the above condition, Tax audit will become compulsory. Further filing an income tax return without a tax audit results in a defective return and assessee may get a notice to file a revised return with a tax audit report.

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